Introducing the report
Mr. Alan Robertson, CEO,
JLL MENA, said:
“With an increase of 65% in the number of transactions in 2012, the Dubai real estate sector will continue to shift up a gear in 2013, experiencing a broader based recovery on the back of continued economic growth. Abu Dhabi remains 18 to 24 months behind Dubai and the market is not expected to experience an upturn in 2013. The foundations are however being laid for a recovery from 2014, with a number of major infrastructure projects scheduled to start later this year.”

He added: “We also expect the real estate in both markets to benefit from increased economic activity between the UAE and East Asia, specifically China and South Korea, as well as sub Saharan Africa and Australia. We also look forward to the
Expo 2020 announcement in November. Success will be a significant boost to the domestic real estate market, hence our continued support as an official bid supporter.”

Return of confidence to the Dubai market: Factors like the UAE’s economic growth, increased employment, Dubai’s safe haven status and improved price/rental performance have led to continued market confidence. With many real estate project announcements over the past six months, this increased market confidence has become more pronounced. The government is keen to create a more stable market environment as illustrated by the new mortgage caps from the UAE Central Bank.

Funding real estate development in 2013: Funding constraints will apply a natural brake on the pace of new development. Usual real estate financing routes such as off plan sales, IPO / bond issues or bank lending are already challenged. LTV ratio caps might also act as a deterrent as it will limit availability of mortgage finance to end users. In 2013, new development funding is likely to come from overseas cash purchasers and private money from other businesses.

Increased involvement from East Asia and the Global South: Increased real estate investment is expected from China and South Korea due to greater business cooperation with the UAE. Chinese involvement is particularly pronounced in the retail sector and is likely to continue in 2013 along with possible investments in the hotel and tourism sectors. There is also increasing interest from Sub Saharan Africa, particularly from oil rich countries like Angola and Nigeria.

Increased choice as supply levels remain significant: Buyers and tenants will have a multitude of choices in some sectors in 2013, with significant levels of new supply acting as a constraint on the overall performance of the UAE real estate sector, possibly offsetting the positive impact of improved market sentiment.

Operational and financial management: In 2013, there will be greater awareness of the importance of both the operational and financial aspects of property management. Operational issues are getting increased attention due to various factors like health/safety considerations, demanding occupiers, stringent legislations and adoption of best practices. On the other hand, financial issues are also becoming increasingly important as more focus is given towards greater transparency of operating costs. Best value approaches are likely to be more widely applied, rather than lowest cost options.

Sustainability: With continued progress in 2012, sustainability is expected to move into even greater focus in 2013. With Masdar and Estidama regulations, Abu Dhabi will continue to take the lead. Most sustainability initiatives in 2013 are likely to be micro and small scale as there is a general reluctance among owners to accept green leases. Evidence from overseas suggests sustainability is unlikely to be fully embraced until either government regulations force change or there is shift in local market perceptions about the financial viability of green buildings.

Government initiatives: The government will remain a major player influencing the UAE real estate market in 2013. Initiatives such as the UAE Central Bank mortgage cap, approval of the Dubai Urban Planning Framework and consolidation of real estate players in Abu Dhabi will better regulate or tighten control on market conditions. While initiatives such as regulation on housing allowances for Abu Dhabi government employees, announcement of major government back projects and AED 330 billion stimulus package in Abu Dhabi will stimulate demand and market performance.

Craig Plumb, Head of
Research, JLL MENA​ concluded: “2013 will see an increase in confidence and sentiment in the Dubai market generally. The market will experience a broader based recovery, with all sectors seeing some pockets of rental growth in 2013. Rents for selected prime office buildings are likely to increase for the first time since 2008, but this will not be true of all office properties in every location. Further analysis suggests that Dubai has passed through the peak of its construction cycle so increased demand will continue to reduce over supply. A number of major projects have been announced in Dubai recently but these will take some time to come to fruition. In the meantime we would urge cautious optimism. Good projects with secure funding and tenant commitments will succeed, but we must avoid the over exuberance and over supply seen before the global financial crisis.”

He concluded:
“The relationship between landlords and tenants will continue to mature with the market seeing increased transparency in terms of operating costs and service charges. Both Dubai and Abu Dhabi Governments are also introducing initiates to better regulate or control market fluctuations which we generally welcome. Sustainability, property management, liquidity and reduction in the over-supply of inappropriate buildings will continue to drive and dominate the 2013 agenda.”